NEW YORK (MainStreet) — Wondering how to get in on the planned Albertsons IPO before it goes public? Take a look at shopping center owner Kimco Realty (KIM) - Get Report, which currently holds a 10% stake in the closely-held grocery store chain. Internal data released with the preliminary IPO documents indicate that Kimco's stake is worth about $1.5 billion - which is much higher than previously projected in the company's share price, according to a Green Street Advisors report. In fact, it lifts Kimco's value to about $28 a share. The stock closed Thursday at $23.63 a share.
The New Hyde Park, N.Y. real estate investment trust is part of a consortium led by private equity shop Cerberus Capital Management LP that has been snapping up Albertsons stores for the past decade.
The buying spree began in 2006, when Albertsons was split into two, with a chunk of the stores being purchased by the consortium. Kimco's "investment generated a 5x equity multiple - a clear home run," said Jason White, an analyst at real estate research firm Green Street Advisors, in a report. In 2013, the consortium acquired 900 stores from Supervalu, which included the Albertsons stores that were not acquired in the 2006 deal. And in early 2015, the group added Safeway to its grocery basket, and merged the Safeway stores into the Albertsons entity.
Experts say Kimco's interest in Albertsons was part of its long-term goal of creating value through investments in real estate-rich retailers. Some REITs are encouraging retailers and restaurants, such as Sears Holdings (SHLD) and Darden Restaurants (DRI) - Get Report, to spin off their real estate into a separately-traded REIT.
Others have taken stakes in retailers in the hopes of cashing in later. Sometimes, it doesn't always work out though. In 2005, Vornado Realty (VNO) - Get Report teamed up with private equity firms Bain Capital LLC and Kohlberg Kravis Roberts & Co. LP to acquire retailer Toys R Us in a leveraged buyout. Vornado has been racking up losses on the deal ever since.
But Kimco's investment in Albertsons is looking even better than analysts' first expected.
Initially, analysts had to assess the value blindly using historical values/trends and other factors since little disclosure was provided by the majority partner, Cerberus. At the time, analysts pegged the value of Kimco's stake around $275 million, or 65 cents a share.
However, analysts recently got a glimpse of the company's financials in the preliminary IPO documents. "The S-1 includes helpful financial data that largely solves this issue," said White, who now estimates the stake's value much higher - at $460 million, or $1.10 a share. As a result, this bolsters Kimco's net asset value to $28 a share, he said, in the report.
It's not known when Kimco will sell its stake in Albertsons.
"It appears Kimco's stake will not be sold in the IPO," wrote White, in the report. "The timing of Kimco's monetization remains unclear, but the IPO filing was sooner than expected and likely accelerates the harvest of Kimco's investment."
I do not hold positions in any of the stocks mentioned in this story.